Victor Posner

Victor Posner, master of the hostile takeover, died on February 11th, aged 83

IT WAS easy to be rude about Victor Posner. “Vulture” was one of the politer nouns applied to him. Mr Posner was a pioneer of the hostile takeover of a public company. He was dismissive of the convention previously observed that a takeover should have the agreement of the existing board. He would spot a company whose assets he judged were undervalued, gain control and milk it. Some bits would be sold off, others would be closed. Previously unconsidered treasures, such as the employees' pension fund, would be raided and reinvested in Mr Posner's other companies. As chief executive Mr Posner would draw a large salary. At one stage he controlled more than 40 companies said to be worth $4 billion and was reckoned to be one of the highest-paid men in the United States.

Worried companies fearing a Posner raid sought to stop him. This was not proper business, they said; it was more like undeclared war. They set up defences against the aggressor. “Golden parachutes” were promised to managers of threatened companies, potentially increasing the cost of a takeover. “Poison pills” were schemes to issue extra shares, again designed to make a takeover more expensive. A “sandbag” was a device to gain time in the hope that a more acceptable company, a ”white knight”, would try to take over. But against Mr Posner's blitzkrieg the defences were no more use than the Maginot line.

Mr Posner had his defenders. If you believe in a free market is it fair to vilify someone who is simply trying to make a living, albeit a good one, by making use of the system? Then again, many of his victims were said to be tired and underperforming. Mr Posner, it could be claimed, was having a healthy effect on the market. This surely was the entrepreneurial spirit that had helped to make America great. Regulation on the other hand was the Great Satan. Such opinions tended inevitably to be offered by those who took a detached view of the market rather than by those who had suffered its cruelty. All the same, as a result of Mr Posner's adventures and those of others who followed his lead in the era of modern takeovers, the market found itself caught in a moral maze of freedom and regulation that continues to be confusing.

Rudiments of business

The scourge of the boardrooms had no formal financial training. Victor Posner was the son of Russian immigrants. He left school at 13 and learnt the rudiments of business helping in his father's grocery shop in Baltimore. At the time of the Great Depression he somehow was able to borrow money to build low-cost housing, all that people could afford. He retained the leaseholds, bought others, and collected the ground rent. He was said to own around 20,000 leases, each bringing in a trickle of rent. By the mid-1950s, when Mr Posner was in his 30s, he was already rich and had settled in Miami, and was bored and wondering what to do next.

His first successful hostile bid was for a Detroit cigar maker that became his holding company. Mr Posner had rediscovered a financial instrument known as leverage, much used in the wild 1920s by financiers such as Ivar Kreuger (who shot himself when things went bad). The huge debts Mr Posner ran up to pay for his raids were backed by holdings in other companies he controlled. Soft-drink bottlers, fast-food chains, a steel company, an insurance company, one by one they fell into his shopping basket.

Mr Posner gained a reputation for being clever, creative, perhaps a financial genius. Kenneth Galbraith for one was scornful about such “genius”:

That a certain diligence is required in financial transactions is not in doubt: the practitioners and their acolyte lawyers are known to work relentlessly. Needed also are at least an elementary knowledge of corporate accounting and the ability to digest and remember the information so revealed. Needed most of all is a relentless desire to accumulate money at whatever cost to reputation or personal liberty. But not much else.

Mr Posner nearly lost his liberty in 1987 for tax evasion, but a lenient court ordered him to give $3m to charities and serve meals to the homeless for eight weeks. He was in and out of civil courts pursued by irate shareholders who claimed mismanagement and other sins, but was generally well protected by lawyers. The Securities and Exchange Commission, the government body that watches over capital markets, was involved in some cases to do with takeovers but was wary of being seen to be too interfering. In 1994 Mr Posner was found guilty of concealing a fraudulent takeover scheme involving two other financiers, Michael Milken and Ivan Boesky. The judge said Victor Posner was “contemptuous of the interests of public shareholders” and barred him from serving on any public company. But by then he was close to retirement.

He professed not to care about his reputation, but like other owners of needless amounts of money he sought to be liked by giving some away. In future years anyone visiting the University of Miami may notice the imposing Victor Posner Centre for Communicative Disorders and wonder who the benefactor was. A good man, no doubt.